Stimulating growth

Right now the economy is faced with a significant conflict. In general demand for most products is down, a deflationary factor while the amount of money in circulation is greatly increased, an inflationary factor.

If you focus on the demand aspect you may very well predict negative growth, deflation and massive unemployment.

If you focus on the money supply you may very well predict high inflation.

Of course you can't have both deflation and inflation, so should we average the two and come out just about right? Would seem unlikely but it does seem that the weak economy will resist the inflationary pressures for a while.

However, the only real way to eventually avoid economic collapse is to grow the economy. There are, and have been a number of challenges facing the economy that have been developing. Perhaps the most serious is the aging of the population. If we assume that the baby boomer generation is going to start, or has already started, to leave the workforce in great numbers, then the demographics tell us that less and less workers will have to support more and more retirees.

This demographic to a large extent drives the medicare finance problem. it also drives the social security problem. These systems were designed as pay-as-you-go systems meaning that the amount collected each year pays for the benefits of the folks collecting benefits. Now if you have more and more people collecting benefits and less people paying into the system, it is pretty obvious that the burden will at some point become untenable.

Of course the recent loss in value of baby boomer assets in real estate and many retirement accounts may slow the number of retirements, and the added stress may reduce the numbers somewhat, but it isn't a long term solution.

The best solution to this problem would be to somehow create massive growth followed by a increase in jobs. Additional jobs would be filled either by these very boomers, immigrants or by exporting the jobs. Recently the last of these options has been the more common, and that creates the big issue related to taxation. We rely on income and corporate taxes in this country and if we export jobs, we lose the income tax portion. Now it is unlikely we are going to start imposing income taxes on workers in other countries, so if we are going to continue this practice we really need to consider switching from an income tax to a consumption tax. Then every product sold in this country would pick up a fair share of the tax burden, no matter where the workers were.

Now without going off on a tax discussion, where is this growth going to come from. Generally, a single growth industry is enough to drive the economy if it is indeed robust enough. As that industry creates jobs, those people increase demand in other areas, driving an upward spiral of growth.

It would seem that a massive effort to switch to renewable resources in this country has the most potential. It would create jobs in this country, inspire new technology and construction and improve the balance of payments.

If you look at the recent economic crisis, it had a lot of fundamental reasons, massive debt and inflated asset values, but perhaps the most critical and the one that actually drove the start of the collapse was our dependence on foreign energy and the massive balance of trade issue that creates. You never really can solve a problem if you don't address the root cause and I firmly believe the root cause is fairly obvious and its time we solved it.